Conservatives are howling about the IRS targeting Tea Party groups applying for nonprofit tax exemptions.
Well, welcome to our world. Nonprofit journalism has been going through the same thing for the last few years, with almost none of the screeching—even though journalism organizations had a much better case for tax exemptions than did the Tea Party groups.
Tell me if this sounds familiar: The IRS targets a particular kind of nonprofit applicant for special scrutiny. Scrutiny comes from the Cincinnati office, works upward to Washington, D.C., and leaves applicants in limbo for years. After years of rubber-stamping approvals, the review comes amid a surge in applications in a murky part of the tax code. Some suggest politics plays a role in favoring some applications. The IRS itself specifically questions applicants about their political activities.
That’s what happened to the nonprofit-news movement for the better part of three years, something I reported on last fall. But there’s been little-to-no uproar over the First Amendment implications of selecting journalism startups for special scrutiny.
San Francisco Public Press, El Paso’s Newspaper Tree, New Orleans’s The Lens, Rhode Island’s Johnston Insider, the Investigative News Network, San Diego News Room, Virginia’s The Arlington Mercury, and the Chicago News Cooperative all had to run the IRS gamut—and those are just the ones we know about. (The right-wing provocateur James O’Keefe III’s Project Veritas, by contrast, breezed through 501(c)(3) approval while legitimate news organizations who had applied earlier waited years, answering repeated (and repetitive) inquiries from IRS agents.)
The INN’s Kevin Davis told me last November that “The IRS has preemptively suggested that we modify our procedures, change our policies, and modify our articles of incorporation to remove the word ‘journalism’ because that is not a charitable cause.” Agents asked the SF Public Press, repeatedly, to sign forms promising not to make political endorsements, according to Steven Waldman’s Council on Foundations report two months ago.
Why did the IRS suddenly start putting nonprofit journalism startups through the wringer, and why did it take so long to finally approve them? The Cincinnati IRS office noticed a surge in activity in the sector a few years ago as for-profit journalism took a beating, and while the IRS had typically put up little resistance to nonprofit news applicants (at least since it threatened Mother Jones’s tax-exempt status in 1981 and was defeated), Congress has never specifically protected journalism in the 501(c)(3) section of the law.
Journalism organizations, including this one, get in under the educational activity exemption, which requires “the instruction of the public on subjects useful to individuals and beneficial to the community.” While the IRS’s fumbled the handling of nonprofit news in the last few years, the need for an updated code specifically exempting journalism is clear.
Why the nonprofit news mess took so long to sort out is less clear, though it’s worth noting, as David Cay Johnston has, that the IRS is seriously understaffed. The Transactional Records Access Clearinghouse at Syracuse University says IRS staffing is down 23 percent in the last two decades, while tax returns are up 27 percent. Do the math.
The Tea Party story is awfully similar. There’s a surge in applications from these groups, except they’re applying under the 501(c)(4) section, which allows groups “operated exclusively to promote social welfare” to operate without taxes. The code specifically prohibits political organizations, but with a loophole big enough to drive an American Crossroads and a Priorities USA through:
The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. However, a section 501(c)(4) social welfare organization may engage in some political activities, so long as that is not its primary activity. However, any expenditure it makes for political activities may be subject to tax under section 527(f).
It’s unsurprising that the sudden increase in Tea Party-related 501(c)(4) applicants would raise red flags at the IRS since these groups, by their nature, likely had political objectives. None of their applications ultimately were denied (read an IRS expert, David Cay Johnston, for more on this).